K MART CORPORATION, PETITIONER V. CARTIER, INC., ET AL.
47TH STREET PHOTO, INC., PETITIONER V. COALITION TO PRESERVE THE
INTEGRITY OF AMERICAN TRADEMARKS, ET AL.
UNITED STATES OF AMERICA, ET AL., PETITIONERS V. COALITION TO
PRESERVE THE INTEGRITY OF AMERICAN TRADEMARKS, ET AL.
No. 86-495, 86-624, 86-625
In the Supreme Court of the United States
October Term, 1987
On Writ of Certiorari to the United States Court of Appeals for the
District of Columbia Circuit
Supplemental Brief for the Federal Petitioners
The three new cases /1/ that are the stated occasion for COPIAT's
supplemental brief do not alter the controlling legal principles here;
they simply apply familiar rules of statutory construction to
particular -- and easily distinguishable -- facts. And COPIAT's
surrebuttal adds nothing of substance to its previous arguments. The
question in this case remains whether the Treasury Department has
reasonably interpreted Section 526, 19 U.S.C. 1526, to protect a U.S.
trademark owner against importation of goods bearing its trademark
that were manufactured abroad by a stranger (even if the stranger has
the right to use that mark in the foreign country), but not against
importation of its own (or its affiliate's or licensee's) goods into
the United States after it itself has sold them into foreign commerce.
As we have previously explained (U.S. Br. 10-14; U.S. Reply Br.
2-6), the Treasury Department's interpretation is consistent with the
statutory language. And unlike COPIAT's construction, the Treasury
interpretation is consistent with the basic principles of trademark
law, Section 526's legislative history, and over half a century of
regulatory practice.
1. "Trademark law, like contract law, confers private rights, which
are themselves rights of exclusion. It grants the trademark owner a
bundle of such rights, one of which is the right to enlist the Customs
Service's aid to bar foreign-made goods bearing that trademark." K
mart Corp. v. Cartier, Inc., No. 86-495 (Mar. 7, 1988), slip op. 8 (K
mart I). The Treasury regulation (19 C.F.R. 133.21) provides that the
statutory right to enlist the Customs Service's aid extends to those
cases where the trademark owner seeks to exclude infringing goods
(even if they are genuine under the law of the country they come
from), but not to situations where the trademark owner seeks to
exclude goods that it itself (or its affiliate or licensee) had put
into commerce. See 19 C.F.R. 133.21(c)(1). COPIAT, by contrast
argues that Section 526 entitles the trademark owner to enlist the
Customs Service's aid to bar importation both of infringing goods and
of its own products after it has sold them abroad. /2/
The Treasury regulation reflects a settled principle of domestic
trademark law: a trademark owner has the right to prevent others from
using his mark on their goods but does not have the right, merely by
virtue of owning the mark, to limit the resale of his own goods once
he has put them into commerce. Champion Spark Plug Co. v. Sanders,
331 U.S. 125, 128-130 (1947); Prestonettes, Inc. v. Coty, 264 U.S.
359, 368-369 (1924); NEC Elec. v. Cal Circuit Abco, 810 F.2d 1506,
1509-1510 (9th cir. 1987), cert. denied, No. 87-125 (Oct. 5, 1987).
"'A trade mark only gives the right to prohibit the use of it so far
as to protect the owner's good will against the sale of another's
product as his . . . . When the mark is used in a way that does not
deceive the public we see no such sanctity in the word as to prevent
its being used to tell the truth.'" Champion Spark Plug Co., 331 U.S.
at 129 (quoting Justice Holmes' opinion in Prestonettes, Inc., 264
U.S. at 368) (emphasis added). For example, Ford and General Motors
can prevent an unrelated upstart automobile maker from attaching their
trademarks to his cars, but they have no right under trademark law to
prevent one of their own customers from reselling his "second-hand
Ford or Chevrolet car" (Champion Spark Plug Co., 331 U.S. at 129).
COPIAT reads Champion Spark Plug Co. and Prestonettes as "cases
concern(ing) the proper scope of a trademark owner's remedy for what
was found * * * to be a trademark infringement resulting from the
resale of goods the trademark owner put into commerce" (Supp. Br. 6
(emphasis in original)). But in each case, the claim of infringement
was that modified trademarked goods (reconditioned sparkplugs and
reformulated face powder) were being sold in circumstances where they
could be mistaken for the trademark owner's original product. The
express premise was that the simple resale of a trade-marked product,
with no substantial modification, would not infringe the trademark.
/3/ COPIAT's suggestion (Supp. Br. 5-6) that simple resale can
infringe the mark -- and that the only question is one of appropriate
remedy -- is an extraordinary departure from both settled trademark
law and the common understanding of everyone who has ever bought and
later resold an item bearing a brand name. See 3A R. Callmann, The
Law of Unfair Competition, Trademarks and Monopolies Section 21.13, at
62 (L. Altman 4th ed. 1983 & Supp. 1987). /4/
The Treasury regulation interprets Section 526's trademark
protection in light of the familiar trademark principle underlying
Champion Spark Plug Co. and Prestonettes. As the Commissioner of
Customs explained in 1951 (J.A. 53):
(I)f the United States trade-mark owner and the owner of the
foreign rights to the same mark are one and the same person,
articles produced and sold abroad by the foreign owner may be
imported by anyone for the reason that the trade-mark owner has
himself introduced the articles into commerce or authorized such
introduction and may not unreasonably restrict the use of the
product thereafter. For this purpose a foreign subsidiary or
licensee of the United States trade-mark owner is considered to
stand in the same shoes as such trade-mark owner.
To continue with the earlier example, General Motors can obtain the
Customs Service's aid in excluding a "Chevrolet" made abroad by
someone else (even if the stranger has somehow acquired the right to
use that name in the country of manufacture) but General Motors may
not ask the Customs Service to bar overseas purchasers of General
Motors' own Chevrolets from bringing their cars into the United
States. /5/ This interpretation of Section 526 does not, of course,
mean that a manufacturer is powerless to control resales of its
trademarked products: General Motors and Nikon are free if they wish
to impose various contractual restrictions, or to put different labels
on products they wish to aim at different markets. They simply are
not entitled to the Customs Service's assistance in segmenting the
international marketplace.
2. The context in which Section 526 was enacted also provides
compelling support for the Treasury interpretation. As COPIAT
concedes (Br. 24), Section 526 was Congress's response to the Second
Circuit's decision in A. Bourjois & Co. v. Katzel, 275 F. 539 (1921),
rev'd, 260 U.S. 689 (1923). See U.S. Br. 14-25. The Second Circuit
had held that an American company that had purchased a trademark and
product distribution rights from an unrelated French manufacturer
could not invoke its trademark to exclude the French manufacturer's
goods, reasoning (275 F. at 543) that a trademark simply demonstrates
"the origin of the goods they mark" and that since the imported goods
truly came from the French manufacturer, the American trademark owner
could not object to them. See U.S. Br. 15-16. This Court
subsequently reversed that decision, holding that the imported product
infringed the American company's trademark because that mark
"indicates in law, and, it is found, by public understanding, that the
goods come from (the American company) although not made by it" (260
U.S. at 692). But before this Court acted, Congress enacted Section
526 for the specific purpose "of protecting the property rights of
American citizens who have purchased trademarks from foreigners" (62
Cong. Rec. 11603 (1922) (Sen. Sutherland)). /6/
The sponsors repeatedly emphasized during the ten-minute debate on
this "midnight amendment" (62 Cong. Rec. 11602 (1922)) that this was
the only purpose of this section. See U.S. Br. 17-25. Section 27 of
the Trademark Act of 1905, ch. 592, 33 Stat. 730, already protected
the U.S. trademark owner from any "simulation" of his mark. As Judge
Learned Hand explained shortly thereafter, Section 526 "was intended
only to supply the casus omissus, supposed to exist in section 27" as
a result of the Second Circuit's Katzel decision -- i.e., to deal with
the case of goods that bear trademarks that infringe in this country
but are lawful in the country of origin. Coty, Inc. v. Le Blume
Import Co., 292 F.264, 268-269 (S.D.N.Y. 1923). There is no evidence
that Congress intended, nor any reason why Congress would have wanted,
to break with existing trademark principles and require the Customs
Service to assist foreign or American manufacturers in keeping their
own goods out of the U.S. market. See U.S. Br. 17-25; U.S. Reply Br.
9-11.
COPIAT has responded to the 1922 legislative debate primarily by
evading it. In its previous brief, COPIAT suggested (Br. 28-29) that
this Court should disbelieve the sponsors' comments on the limited
scope of Section 526 because they actually had a hidden goal -- one
that cannot be detected from the legislative record -- to achieve much
broader aims. In its latest brief, COPIAT avoids the 1922 debate
completely, and instead draws dubious inferences (Supp. Br. 4) from a
1929 debate concerning an amendment to Section 526 that was never
enacted. The 1922 debate, which led to the enactment of the language
at issue, is obviously the relevant source for determining
congressional intent. And that debate indicates quite convincingly
that Congress did not expect or intend that Section 526 would lead to
the result that COPIAT now urges 66 years later. See U.S. Br. 17-25.
3. COPIAT's contention (Supp. Br. 9) that the Treasury Department's
interpretation of Section 526 has been "inconsistent" and "belated" is
both inaccurate and ironic. It is inaccurate because the Treasury
Department has consistently maintained for over 50 years that a
trademark owner cannot invoke Section 526 to exclude its own goods.
The Treasury Department formally recognized this principle in 1936,
through a regulation specifically providing that the Section 526
exclusion is not available if the foreign and U.S. trademarks "are
owned by the same person, partnership, association, or corporation"
(Art. 518(b) (J.A. 28)). /7/ We are aware of no instance (and COPIAT
has pointed to none), prior to the 1936 regulation, where the Treasury
Department acted inconsistently with that principle. And since 1936,
the Treasury Department has always followed that principle. The
question on which Treasury's approach has varied is the extent to
which affiliated or related companies are to be treated as the "same
person" (U.S. Reply Br. 16 n.15). This is not a simple question, and
in the past half century -- which has witnessed dramatic changes in
international trade and business practices /8/ -- the Treasury
Department has made four changes in its regulation to adjust its
approach to the treatment of multicorporate multinational enterprises
(ibid.). These occasional changes in the precise definiton of the
boundary do not support COPIAT's contention that no boundary at all
may be drawn between infringing goods and the trademark owner's own
goods. /9/
COPIAT's characterization of the Treasury Department's
interpretation as "belated" is ironic given the short history of its
own interpretation. While the Treasury Department's basic
interpretation has been in place for 50 years, and the very regulation
at issue has been in place for 16 years, COPIAT's interpretation began
with this lawsuit. Neither COPIAT nor its members participated in the
1972 rulemaking. See J.A. 75-76. Indeed, it is fair to say that
COPIAT has pursued this suit precisely because it has been unable to
achieve the result it seeks through legislation. U.S. Br. 5, 44-45.
COPIAT's debatable and unproven policy arguments (Supp. Br. 7-9)
provide no ground for jettisoning the Treasury Department's
longstanding and reasonable interpretation of Section 526. This is
particularly true given the substantial reliance interests that have
been built upon this regulation. See U.S. Br. 4-5, 43-45; U.S. Reply
Br. 18-19. /10/
4. The question here, at bottom, is whether the Treasury regulation
is a "reasonable agency interpretation" of Section 526. K mart Corp.
v. Cartier, Inc., No. 86-495 (Mar. 7, 1988), slip op. 1. As we have
previously explained (U.S. Br. 11-14; U.S. Reply Br. 2-4), the
regulation is consistent with "plain language" principles. It applies
the words of the statute quite straightforwardly to bar importation in
the class of cases with which Congress was explicitly concerned but
leaves unaffected a quite different class of cases that Treasury has
determined, based on the legislative context, Congress did not intend
to reach. This result is neither unfamiliar nor contrary to
established principles of statutory construction; quite to the
contrary, it focuses on what Congress meant by the words it used.
This Court has frequently declined to interpret a statute as reaching
every case its words might literally cover. The most recent example
is United States v. Wells Fargo Bank, No. 86-1521 (Mar. 23, 1988),
where the Court held that a 1937 law exempting certain project notes
"from all taxation now or hereafter imposed by the United States" (42
U.S.C. 1437i(b)) did not provide an exemption from federal estate
taxation. There are numerous other examples. /11/
The Treasury Department's interpretation of Section 526 is
consistent with the statutory language and, unlike COPIAT's
interpretation, is consistent with settled principles of trademark law
and the specific -- and clearly enuciated -- goals of its sponsors.
These factors are as much a part of the legislative context, from
which a court must determine what Congress meant by the words it used,
as a conflicting statute (see K mart I Tr. Oral Arg. 9) or the
historical understandings that motivated this Court's decision in
Wells Fargo Bank. Treasury's sensible and longstanding
interpretation, which has generated far-reaching commercial
expectations for a broad class of retailers and consumers, is entitled
to deference from this Court.
For the foregoing reasons, and the reasons set forth in our
previous briefs, the judgment of the court of appeals should be
reversed.
Respectfully submitted,
CHARLES FRIED
Solicitor General
APRIL 1988
/1/ ETSI Pipeline Project v. Missouri, No. 86-939 (Feb. 23, 1988);
NLRB v. United Food & Commercial Workers Union, Local 23, No. 86-594
(Dec. 14, 1987); Gwaltney of Smithfield, Ltd. v. Chesapeake Bay
Found., Inc., No. 86-473 (Dec. 1, 1987).
/2/ The paradigm case, which has been the focus of the Treasury
Department's regulations since 1936 (Art. 518(b) (J.A. 27-28)), is the
case where the same company owns both U.S. and foreign marks and is
seeking to exclude its own foreign-made goods. The Treasury
Department has modified its regulation over the years to embrace
various "common-control" situations as well, but these modifications
are simply extensions of the basic logic that applies in the "same
company" case. See pp. 8-10, infra.
/3/ See Champion Spark Plug Co., 331 U.S. at 129 ("we would not
suppose that one could be enjoined from selling a car whose valves had
been reground and whose piston rings had been replaced unless he
removed the name Ford or Chevrolet"); Prestonettes, 264 U.S. at 369
("If a man bought a barrel of a certain flour, or a demijohn of Old
Crow whiskey, he certainly could sell the flour in smaller packages or
in former days could have sold the whiskey in bottles, and tell what
it was, if he stated that he did the dividing up or the bottling.");
see also Coty v. Prestonettes, Inc., 285 F. 501, 508 (2d Cir. 1922)
("There is no doubt, of course, that the defendant, after purchasing
L'Origan face powders and perfumes from the complainant, was entitled
to sell them in the original packages.").
/4/ COPIAT concedes (Supp. Br. 6) Callmann's statement that "resale
or advertising for sale of the genuine plaintiff's article in its
original form, under plaintiff's trademark, affixed by plaintiff's
authorization, is not trademark infringement" (3A R. Callmann, supra,
Section 21.13, at 62 (footnote omitted)). But COPIAT suggests (Supp.
Br. 6) that the commentator takes a different view concerning
transnational resales "at a different page" of his treatise. In fact,
the commentator simply recognizes what this case demonstrates; namely
that "different legal theories compete in this area" (3A R. Callmann,
supra, Section 21.17, at 75). The commentator goes on to explain that
the theory that a trademark owner exhausts his rights upon sale
supports the legitimacy of parallel imports "because a seller should
not be able to control what he has already sold" (id. at 76). He
further observes that the "principle of 'trade identity' suggests that
the importer should always win because the ultimate source of the
goods is the same, regardless of who owns the mark domestically"
(ibid.). He also states that the "principle of 'territoriality'"
would support the contrary view (ibid.), but as we explained in our
reply brief (at 8), that principle does not go that far.
/5/ Sturges v. Clark D. Pease, Inc., 48 F.2d 1035 (2d Cir. 1931),
which concerned an imported automobile, did not involve the issue now
before the Court. The question there was whether the term
"merchandise" applies to goods imported for personal use; it does not
appear from the opinion that the U.S. and foreign trademark owners
were the same or related persons. See K mart I Tr. Oral Arg. 32, 38.
/6/ In the Katzel case, the goods sold in this country by the U.S.
trademark owner had in fact been manufactured by the same French
company and sold to the U.S. trademark owner. That fact, however, has
no significance: if the U.S. company, after purchasing the American
trademark, had manufactured the face powder itself in this country and
had sought (as in the Katzel case) to exclude the foreign
manufacturer's powder, the Second Circuit, this Court, and Congress
would all, so far as appears, have reacted exactly as they did. See K
mart I Tr. Oral Arg. 7-8.
/7/ COPIAT argues that this regulation "related only to what is now
Section 42 of the Lanham Act" (Supp. Br. 10 n.9). The regulation,
however, specifically cited Section 526 (J.A. 27) and the Treasury
Department has always maintained that the regulation was meant to
implement Section 526. The Treasury Department's interpretation of
its own regulation in these circumstances is, of course, controlling.
United States v. Larionoff, 431 U.S. 864, 872 (1977). And if there
were any doubts on this score, they were eliminated in Section
11.14(a) and (b) of the 1943 revision (J.A. 39), which again cites
Section 526, again adverts to the problem of trademarks that are
genuine in a foreign country, and again denies protection in the "same
company" situation. See also Section 11.14 of the 1947 revision (J.A.
45-46).
/8/ See, e.g., Hadari, The Structure of the Private Multinational
Enterprise, 71 Mich. L. Rev. 729, 733-743 (1973).
/9/ COPIAT's reliance (Supp. Br. 11 & n.10) on the Guerlain
litigation (United States v. Guerlain, Inc., 155 F. Supp. 77 (S.D.N.Y.
1957), vacated and remanded, 358 U.S. 915 (1958), dismissed, 172 F.
Supp. 107 (S.D.N.Y. 1959)) continues to be misplaced. See U.S. Br.
39-40 n.48; U.S. Reply Br. 17 n.16. COPIAT cites the district court
finding that Parfums Corday, Inc. (which was but one of the defendants
in the case) closely controlled a French manufacturing affiliate and
infers that the Customs Service must have intended to give that
company the benefit of Section 526. As a customs law specialist
addressing Guerlain pointed out nineteen years ago, the Customs
Service "had always denied complete exclusionary protection to an
American trademark registrant when it knew the importer to be a
subsidiary or parent of the foreign user of the trademark. Prior to
1953, however, the Customs Regulations were not set up to specifically
elicit this kind of information." Atwood, Import Restrictions on
Trademarked Merchandise -- The Role of the United States Bureau of
Customs, 59 Trademark Rep. 301, 307 (1969). Thus, the Customs Service
would not have known of Parfums Corday's affiliate if that company had
registered for Section 526 protection prior to 1953, or had otherwise
failed to provide the agency with that information.
/10/ COPIAT's claims of hardship to its members (Supp. Br. 8-9) are
difficult to take seriously. For example, COPIAT despairs (id. at 8)
that the Customs Service regulation has "victim(ized), in an
especially vivid way" two of its members, Nikon, Inc. and E. Leitz,
Inc. Prior to 1981, the foreign manufacturers of Nikon and Leica
cameras selected these two companies as independent U.S. distributors
for their products; accordingly, these U.S. companies could invoke
the Section 526 exclusion. In 1981, however, the respective foreign
manufacturers acquired the companies and, in accordance with the
Treasury Department regulation, the Customs Service terminated the
distributors' right to the exclusion. Plainly, neither the
manufacturers nor the distributors are entitled to much sympathy as a
result of that consequence. The foreign manufacturers, who were
certainly aware of the Treasury Department regulation, made a business
decision to acquire their distributors, notwithstanding the
distributors' loss of the Section 526 exemption. Furthermore, those
manufacturers, who can control the worldwide distribution of their
products, have ample means to protect their U.S. distributors from
parallel imports -- through, for example, labelling or stricter
control over foreign distributors -- if that were what they truly
desired. Thus, if Nikon, Inc. and E. Leitz, Inc., are "victims" it is
at the behest of their parents, with whom they share "'a unity of
purpose or a common design'" (Copperweld Corp. v. Independence Tube
Corp., 467 U.S. 752, 771 (1984) (citation omitted)).
/11/ See e.g., United States v. American Trucking Ass'ns, 310 U.S.
534, 543 (1940) (term "employees" of motor carriers, as used in Motor
Carrier Act, refers only to employees in safety-related jobs and not
to all employees: "even when the plain meaning did not produce absurd
results but merely an unreasonable one * * * this Court has followed
(the legislative) purpose rather than the literal words"); California
Federal Savings & Loan Ass'n v. Guerra, No. 85-494 (Jan. 13, 1987)
(holding that a statute providing that pregnant women "shall be
treated the same (as other persons) for all employment-related
purposes" (42 U.S.C. 2000e(k) (emphasis added)) does not forbid
special leave and reinstatement allowances); O'Connor v. United
States, No. 85-558 (Nov. 4, 1986) (holding that a treaty exempting
Panama Canal Commission employees from "any taxes * * * on income
received as a result of their work for the Commission" (slip op. 2
(emphasis added)) does not exempt them from U.S. income taxation);
other examples cited at U.S. Br. 12; U.S. Reply Br. 3. Neither these
examples nor the present case requires "inserting * * * words into the
statute" (COPIAT Supp. Br. 3); Treasury sought merely to give the
words that are there the meaning they were intended to have. It is no
more difficult to read the statutory phrase "bears a trademark" as
referring, in context, to a mark not affixed by the very person that
now seeks to exclude the goods, than to read any "no entry" provision
as implictly excepting authorized persons.